Investment update

Weekly insight into the marketplace.

U.S. inflation cooled for a sixth-straight month

Building on a positive start to 2023, the major U.S. stock markets added to gains from the previous week – which began (on January 6) with strong jobs and services data, raising optimism the U.S. Federal Reserve (the Fed) would be less aggressive with upcoming interest-rate decisions. Monday’s hot start did fizzle, however, prior to the closing bell, after San Francisco Fed President Mary Daly and her Atlanta counterpart, Raphael Bostic, noted their expectation that the U.S. central bank would raise interest rates above 5% by the second quarter. Despite this news, investors remained positive in the lead-up to inflation data released on Thursday. The Consumer Price Index (CPI) report showed that annual inflation cooled to 6.5% in December, down from 7.1% in November (and the 9% peak last June). Core inflation, which strips out volatile food and energy costs, was up 5.71% annually, the slowest pace since December 2021. While the inflation report was on par with economists’ expectations, it was enough to further fuel hopes that the Fed would reduce plans for interest-rate increases. The Dow ended the week up 2%, the S&P 500 closed just shy of 4,000 with a 2.67% increase, and the Nasdaq rose 4.82%.

The World Bank reduced its global growth forecast

In its annual report, the World Bank – which provides loans and grants to the governments of lower- and middle-income countries for development projects – cut its global growth forecast by nearly half: it moved down to 1.7% from the 3% projected last June. If accurate, it would be the third-weakest gross domestic product (GDP) expansion in the last 30 years, trailing only the 2008 financial crisis and the 2020 onset of the COVID-19 pandemic. The bank, which also scaled back its 2024 forecast and warned that the global economy has warning signs of a recession, cited persistent inflation and rising interest rates among several factors working against the economy. “Russia’s invasion of Ukraine has added major new costs,” World Bank President David Malpass told reporters. “The outlook is particularly devastating for many of the poorest economies where poverty reduction is already ground to a halt and access to electricity, fertilizer, food and capital is likely to remain limited for a prolonged period. Addressing the scale of these challenges will require significantly more resources for development and global public goods.”

Oil prices were up, despite an uncertain Q1 outlook

A forecast published by Deloitte pointed to ongoing energy-sector volatility through the first quarter of 2023, as geopolitical risks remain high. Released Monday, the “energy, oil and gas price” forecast underlined the ongoing war in Ukraine, and China’s balancing of new COVID-19 cases and efforts to reopen, as major factors weighing on supply and demand. The report’s author, Andrew Botterill, did note that demand for North American oil and natural gas could benefit Canadian energy companies. Last week, oil prices edged higher, with the price per barrel of West Texas Intermediate reaching US$80. This was following a strong import quota from China as well as Thursday’s positive inflation report. The commodity-heavy TSX rode the energy-sector gains to a five-day win streak.

The stock and bond market^*

Index	Close	Week	YTD
S&P/TSX Composite	20,360.1	2.75%	5.03%
Dow Jones Industrial Average	34,302.61	2.00%	3.49%
S&P 500 Index	3,999.09	2.67%	4.16%
NASDAQ Composite	11,079.16	4.82%	5.85%
10-year Canadian Bond Yield	2.90%	-0.19%	-0.39%
10-year U.S. Treasury Yield	3.51%	-0.06%	-0.32%
WTI Crude Oil (US$/barrel)	$80.07	8.60%	-0.55%
Canadian Dollar	US$ 0.7463	0.35%	1.15%
Bank of Canada Prime Rate 6.45%

*Weekly performance ending January 13, 2023. Source: Refinitiv.

Key take-away

Review your time horizon and your risk tolerance. No one can predict when the markets will rise or fall, or by how much. This makes timing the market a risky approach. That’s why your investment strategy, from the outset, should be based on your goals, your risk tolerance and your time horizon – not the market’s. If you have questions, a Co-operators financial representative is always ready to help.

What’s ahead

Canadian inflation data (January 17): In November, Canadian inflation cooled to 6.8% – slightly down from the previous month’s 6.9% annual rate, but above economists’ expectations of 6.7%. Tuesday’s data will be closey watched, given Bank of Canada Governor Tiff Macklem’s final speech of 2022. In it, he said that “decisions to raise the rate or to pause and assess the impact of past rate increases will depend on incoming data and our judgments about the outlook for inflation.”

Circle these dates

January 25: Bank of Canada interest-rate announcement

January 31 to February 1: U.S. Federal Reserve meetings and statement

February 20: North American markets closed for holidays

The commentary in this report is based on current market conditions and market media sources available to the public and may change without prior warning at any time. The forecasts provided herein are not guarantees of future performance and include risks, uncertainty and assumptions. While Co-operators Life Insurance Company (“Co-operators”) believes these assumptions are reasonable, there is no guarantee they will be confirmed. This report is not a guarantee of future investment performance, nor should undue reliance be placed on this report. This report is provided as a general source of information for a specific point in time and should not be considered solicitation to buy or sell any investment. Nothing contained in this report constitutes investment, legal, tax or other advice. The content in this report should not be relied upon in making an investment or other decision, and individuals should obtain relevant and specific professional advice and read the terms and conditions contained in the relevant offering documents carefully before any investment decision is made. Co-operators is not responsible for any loss or damage as a result of reliance on the information contained in this report. Co-operators makes no representations or warranties as to the information contained herein and does not guarantee its accuracy, timeliness, completeness or usefulness. Co-operators is committed to protecting the privacy, confidentiality, accuracy and security of the personal information it collects, uses, retains and discloses in the course of conducting business. Please visit cooperators.ca/privacy for more information. Co-operators® is a registered trademark of Co-operators Group Limited and is used with permission. Investing in your future. Together.TM is a trademark of Co-operators Group Limited. If you are a client who has received this, and you have questions or want to discuss your investments, please contact your Financial Advisor.

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